Basically, our market view remained unchanged. We still believe that the underlying liquidity position should remain supportive in 1H14 for the local market (with decent upside) despite the less exciting sectorial outlook. In addition, with a healthy correction from its peak of 1,882.2 in early-1Q14, we also reckon that the market valuation has improved as per both (i) discount of FBMKLCI over consensus Target and (ii) Forward PER.

As analysts have started to roll over their valuation base years to 2015 (from 2014) and we have employed a higher target PER as per our Regression Study, our end-2014 Index target has been fine-tuned to 1,930 (from 1,890 previously), implying a FY14 PER of 18.3x or a FY15 PER of 16.7x. Our revised Index Target is also not far from the consensus Index target of ~1,940 and backed by forward earnings growth rates 13.3% & 8.7% for FY14E & FY15F, respectively.

In 2Q14, we prefer Buy On Weakness (B.O.W.) strategy with a revised ideal B.O.W. level of 1,815 (and below). While the upside from here is decent at ~4%, we still have to be very selective in sector targeting and stock picking. This is because the outlook of most of the sectors under our coverage has become less exciting especially post the recent results reporting season.

So far, we have OVERWEIGHT calls on Construction, Gaming, Gloves, Oil & Gas, Plantations, Property Developers and Power Utilities. Apart from the OVERWEIGHT sectors, we also emphasize on export-orientated sectors, i.e. Gloves, Shipping and Semi-Con, to capitalise on the potential trend of further weakening in ringgit against U.S. Dollar if and when capital outflow heightens arising from stronger expectations of rising interest rate in the U.S. As for Top Picks, we are recommending MAYBULK (OP, TP: RM2.53), MPI (OP, TP: RM4.68) and SUPERMX (OP, TP: RM3.80) as proxies to export driven sectors. For ETP related sectors (mainly construction and Oil & Gas), we like DIALOG (OP, TP: RM3.92), COASTAL (OP, TP: RM5.94), IJM (OP, TP: RM6.71) and SUNWAY (OP, TP: RM3.33). We also like IOICORP (OP, TP: RM5.15), RHBCAP (OP, TP: RM8.35) and TENAGA (OP, TP: RM12.33).

Apart from these bigger cap stocks, we feature a few smaller cap alternative picks such as BIMB (OP, TP: RM4.55), HARBOUR (TB, TP: RM2.00), PESTECH (OP, TP: RM4.93), PIE (TB, TP: RM9.20), REDTONE (OP, TP: RM0.81) and TSH (OP, TP: RM4.10).

For downside risk, we foresee a quiet trading period in June 14 and July 14 due to the fasting month and World Cup. Besides, we also do not rule out a more challenging and uncertain scenario in the 2H owing to less certain monetary policy direction in both local and U.S..

Source: Kenanga